Fed: Card balances on the rise once again

Credit card balances rose in
September after a short-lived balance decline in August, the Federal Reserve
said Friday.

Revolving debt increased at a 2.0 percent annual pace in
September, up from a 0.3 percent decrease in August, according to the Federal Reserve's
preliminary G.19
report on consumer credit.
Revolving debt is predominantly composed of credit card balances.

Total consumer debt rose 5.9 percent in September
to approximately $3.27
trillion. Total consumer debt includes revolving debt plus car loans, boat loans and student loans, but excludes mortgages, so it represents the short-term credit
obligations consumers hold in a given month. All figures are seasonally
adjusted to account for expected out-of-the-ordinary fluctuations that may
occur, such as back-to-school or holiday seasons.

Average student loan debt is approximately
$1.31 trillion,
according to the Fed report, a $32.6 billion increase since June, the last time these debt
figures were measured. Outstanding auto loan debt totals about $940.9 billion, an increase
of $22.2 billion
since June.

Despite consumers' willingness to
take on debt in September, total spending decreased approximately $19 billion
(0.2 percent) in the same month after a revised $58.7 billion increase in
August, according to the Commerce
Department.

Personal income growth was still positive, but slowed to 0.2 percent ($22.7 billion) growth overall, lower than August and July's 0.3 percent and even slower than earlier months' reports of 0.5 percent growth. Total personal savings increased to $732.2 billion in September compared to the $702.0 billion saved in August. The personal savings rate -- personal savings as a percentage of disposable personal income -- rose to 5.6 percent in September, from 5.4 percent in August.

"The
fact that the savings rate has edged up suggests that a rebound in spending may
be around the corner," TD economist Andrew Labelle wrote in a research
note. "However, the lack of any real income growth is a concern. We remain
confident that a tightening labor market will eventually lead to faster income
growth, but clearly this has yet to manifest itself, and may take several more
months to occur."

Wage growth continues to lag
Higher card balances come on a foundation of a strong job market going into the
holiday shopping season.

After better-than-expected September
job market growth of 256,000 new jobs (revised up from 248,000) October's
employment report is positive
once again. Employers created 214,000 jobs in October, raising the number of
jobs created so far in 2014 to 2.3 million. This is the highest job creation
tally since 1999, according to a TD Economics jobs report research note.

Additionally, the unemployment rate decreased
to the lowest level since 2008, down to 5.8 percent from 5.9 percent in
September. Labor force participation increased last month as well, with 62.8
percent reporting engagement, up after a decline to 62.7 in September.

However, wage growth is still minimal.
Average hourly employee earnings rose only three cents to $24.57 in October and
have grown only 2 percent this year overall, just enough to keep pace with mild
inflation. This can hinder consumer spending and debt repayment and, as a
result, slow overall economic growth, especially as the retail sales-driven
holiday shopping season approaches.

"The
weakness in earnings growth is the single biggest limiting factor in regards to
holiday season spending," said Scott Hoyt, senior economist for Moody's
Analytics.

However, inflation has been more subdued
recently by low oil prices, which may give consumers more spending ability in
the immediate weeks and months to come.

"Lower
oil prices -- gasoline prices for consumers -- definitely give consumer budgets
freedom and allow them to spend more elsewhere," Hoyt said.
"Consumers don't have much ability to alter how much gas they need to use,
so the less they are paying for that gas, the more they can spend on other
goods and services."

But
from a credit perspective, that doesn't necessarily mean consumers will be
charging more.

"There is another degree to which
lower gasoline prices aren't that positive for card spending," Hoyt added.
"Much
of what is done at gas stations is done using plastic and if the amount being
charged at stations goes down as a result of prices, overall balances may too."

While wage
and spending reports have been a mixed bag -- and at times gloomy -- over the
past few months, consumers aren't discouraged.

The Consumer Confidence Index now stands at 94.5 after a
decline to 89.0 in September, indicating that the current job market and
business conditions improved consumer outlook toward their finances, according
to Lynn
Franco, director of economic indicators at The Conference Board.

"Consumers
have regained confidence in the short-term outlook for the economy and labor
market, and are more optimistic about their future earnings potential,"
she said in the October
Index report.

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